“L$10.9B Circulating outside Banking System”

Milton Weeks, Executive Governor of the Central Bank of Liberia (CBL), yesterday told the Senate plenary that the total amount of Liberian dollars that has been in circulation since last year is around L$12.7 billion.

Governor Weeks disclosed that as at yesterday, the Bank has L$12.7 billion in circulation, adding: “But of that amount, only roughly about L$1.5 billion has been circulating in the banks.”

This, he said, means the CBL has about L$10.9 billion that is outside of the banks’ operations, “and we never see this amount coming in.”

Weeks said that there was a lot of money outside the banking system; the bulk of which, he said, is referred to as “legacy money,” – old currency notes – which are not coming back into the system. This, he said, has limited the ability of CBL, “even if we have turned to the commercial banks to change the money.”

Governor Weeks said, “Most of the money is not in the banking system. It is possible that most of this money that are outside of the banks, per our calculation, might not be there, because some might have almost been destroyed.”

Weeks then told the lawmakers that the bank “believes that it also has an impact in terms of the amount of mutilated notes that people see in the system, because it just circulates outside of the bank; it does not come back into the system; it also has impact in terms of where we see sometimes what looks like influence on the exchange rate, because of the amount of money that is outside of the banking system; that is a possibility as well.”

During yesterday’s hearing, which was also attended by a cross section of citizens, he told the Senators that the solution to what he has already explained to them would be given in the executive session.

Weeks’ appearance yesterday was prompted by a communication from Nimba County Senator Thomas Grupee, who raised concern that even though the CBL was authorized by the Legislature to print new bank notes, and did so in the amount of L$5 billion, there was still heavy circulation of mutilated bank notes at the detriment of ordinary citizens and business places.

Senator Grupee lamented that the situation is so bad that tellers at commercial banks sometimes almost engage into rough verbal exchanges with customers for the mutilated (tear-tear) money.

Neither the Senate nor members of the CBL hierarchy that attended both the opening session and executive could comment on the outcome of the closed door session with Governor Weeks.

12 COMMENTS

Instead of bank tellers complaning about “tear – tear” L$ notes, a system should be in place for customers at all commercial banks to exchange them for new notes. Moreover, it isn’t a stretch to imagine that this “pick & choose”, or “discriminating” attitude is never directed at US$ notes.

Incidentally, since our country conveniently uses both Liberian and American dollars, it is inexplicable that some of us are resistant to dual citizenship. Folks, let’s get our priorities straight to unchain Liberia from the shackles of backwardness.

This is what happens when a monetary authority like the Central Bank of Liberia (CBL) gives tacit approval and support to an illicit parallel market instead of designing appropriate and deliberate policy prescriptions to effectively deal with it. The conduct of monetary policy is a serious task that requires discipline and a firm knowledge and understanding of the operating environment. Its objectives are best achieved through established institutional framework and transmission mechanisms as laid down in the enabling legislation and associated policies and procedures. When the monetary authority deliberately go outside of these established institutional norms and instead conduct itself otherwise, the results cannot expected to be different from the current wave of chaos in the economy. The current situation is largely the making of the CBL and the lack of will to decisively deal with the dual currency situation. Here are two broad cases in point:
1. Unlawful and inappropriate mode of intervention: Several years ago, the CBL decided to bypass commercial banks and ‘lent’ hundreds of millions dollars directly to individuals and groups in the name of fighting poverty. Central banks are not have the relative, technical infrastructure or architecture to vet and manage loan portfolios as commercial banks. And even if the CBL had, doing so would pose a serious and unnecessary conflict of interest. Additionally, there are reports that most of the borrowers are not repaying their ‘loans’ and apparently because of the poor quality of these loans, the CBL is facing challenges to legally enforce collection. Those borrowers who are doing well but not repaying, will do everything possible to keep the proceeds their business operations far away from the banking system and other traditional institutions, thus adding to the quantity of money outside banks. the ultimate consequence of this bad intervention of the CBL is to erode the capital base of the bank resulting from write-off of these bad loans. Finally on this point, the CBL’s mode of intervention was in violation of Part VII Section 32 (1) and an abuse of Section 32 (2) of the Central Bank of Liberia Act of 1999.

2. Imprudent and Illegal Foreign exchange operations: The CBL also engaged in the unorthodox and inappropriate foreign exchange dealings. In the name of ‘stabilizing the exchange rates’, the CBL reportedly gave huge amounts of foreign exchange directly to Fx bureaux, most of which are drivers of the illicit parallel market. Worse, the CBL was said to have bypassed the Auction window, the established institutional framework comprising of banking institutions. By this conduct, the central bank was sewing the seed for distortion in the fx market and its resultant pressure on the very rate regime it was attempting to ‘stabilize’. Most importantly, the CBL foreign exchange operations as conducted was in gross violation of Part VI Sections 28 & 29 of the Central Bank of Liberia Act of 1999. In conducting itself in this disorderly manner the CBL should have known that it was setting the stage for the prevailing situation.
3. Poor policy coordination: The central bank is expected to ensure stability in the general price level especially in the value of the Liberian dollar. This also means that the Liberian dollar must be given preference in all transactions in this jurisdiction. This is why Part V Section 19 (1), (2) specifically says that the Liberian shall be the currency of Liberia and legal tender; and that prices of all transactions in Liberia shall be indicated in Liberian dollars and cents. Unfortunately, demand for the domestic currency is being undermined with the Government of Liberia(GOL), the sovereign representative, in the forefront of the line. With the exception of few transactions, i.e. salaries, cost of birth certificates and business registration and recent vague efforts to pay some taxes in the domestic currency, most GOL goods and services are not denominated in Liberian dollars. The private sector, which takes cue from the public sector, almost all transaction are denominated in United States dollars. How can anyone in his or her right mind expect an orderly economy in such lowly disciplined, confused and chaotic policy environment?
Until and unless we elect a government that will change the plantation mind set and rent system, which have dominated economic planning and management for most our 170 years, this situation will only get worse. This is why I am in agreement with big brother Sylvester Gbayahforh Moses.

This is what happens when a monetary authority like the Central Bank of Liberia (CBL) gives tacit approval and support to an illicit parallel market instead of designing appropriate and deliberate policy prescriptions to effectively deal with it. The conduct of monetary policy is a serious task that requires discipline and a firm knowledge and understanding of the operating environment. Its objectives are best achieved through established institutional framework and transmission mechanisms laid down in the enabling legislation and associated policies and procedures. When this authority deliberately goes outside of these established institutional norms, and instead conduct itself otherwise, it is unreasonable to expect the results to be different from the current wave of chaos in the economy.

The current situation is largely the making of the CBL and the lack of will to decisively deal with the dual currency situation. Here are two broad cases in point:
1. Unlawful and inappropriate mode of intervention: Several years ago, the CBL decided to bypass commercial banks and ‘lent’ hundreds of millions dollars directly to individuals and groups in the name of fighting poverty. Central banks are not structured as commercial banks are, to vet loan proposals and manage loan portfolios. And even if the CBL had, doing so would pose a serious and unnecessary conflict of interest. This is why central banks are required to work through licensed financial institutions instead of going directly to potential borrowers. The CBL approach exposes it to poor recovery and in many cases, low capacity to legally enforce recovery because of the poor quality of the loans. borrowers who are doing well but not repaying, will do everything possible to keep the proceeds of their business operations far away from the banking system and other traditional institutions, thus adding to the quantity of money outside banks. the ultimate consequence of this bad intervention of the CBL is to erode the capital base of the bank resulting from write-off of these bad loans.

Finally on this point, the CBL’s mode of intervention was in violation of Part VII Section 32 (1) and an abuse of Section 32 (2) of the Central Bank of Liberia Act of 1999.

2. Imprudent and Illegal Foreign exchange operations: The CBL also engaged in the unorthodox and inappropriate foreign exchange dealings. In the name of ‘stabilizing the exchange rates’, the CBL reportedly gave huge amounts of foreign exchange directly to Fx bureaux, most of which are drivers of the illicit parallel market. Worse, the CBL was said to have bypassed the Auction window, the established institutional framework comprising of banking institutions. By this conduct, the central bank was sewing the seed for distortion in the fx market and its resultant pressure on the very rate regime it was attempting to ‘stabilize’. Most importantly, the CBL foreign exchange operations as conducted was in gross violation of Part VI Sections 28 & 29 of the Central Bank of Liberia Act of 1999. In conducting itself in this disorderly manner the CBL should have known that it was setting the stage for the prevailing situation.
3. Poor policy coordination: The central bank is expected to ensure stability in the general price level especially in the value of the Liberian dollar. This also means that the Liberian dollar must be given preference in all transactions in this jurisdiction. This is why Part V Section 19 (1), (2) specifically says that the Liberian shall be the currency of Liberia and legal tender; and that prices of all transactions in Liberia shall be indicated in Liberian dollars and cents. Unfortunately, demand for the domestic currency is being undermined with the Government of Liberia(GOL), the sovereign representative, in the forefront of the line. With the exception of few transactions, i.e. salaries, cost of birth certificates, business registration and recent announcement to accept tax payment in the domestic currency, most GOL goods and services are not denominated in Liberian dollars. The private sector, which takes cue from the public sector, almost all transaction are denominated in United States dollars. How can anyone, then, in his or her right mind expect an orderly economy in such lowly disciplined, confused and chaotic policy environment?
Until and unless we elect a government that will change the plantation mind set and rent system, which have dominated economic planning and management for most our 170 years, this situation will only get worse. This is why I am in agreement with big brother Sylvester Gbayahforh Moses

Thanks for the education, younger brother and friend; it is something those currently involved in our nation’s national security management would need in large doses to properly evaluate the impact of monetary policies on the economic health of the country, and consequently stabilization. Anyway, looking through the rearview mirror, if that isn’t like boiling water in the morning to cook the bird that fled the barn overnight.

Thank you, my brother and friend, for the acknowledgement. The days when technical analysis of discrete economic and financial issues with significant implication for national security, are no longer available.

Yes, President WEAH shouldn’t have appointing a apposition in these kind position, because if he keep appointing these kind of peoples, they will surely damage his government, and even damage his character.

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